Should we accept an offer with a contingency?

August 27, 2006 2:58 PM

OK, we FINALLY got an offer on our house (after 4 months on the market) and we can't decide if we should accept.

The house is now listed at $385k and the offer came in today for $325k. We countered with $370k and they countered with $345k. We counter-countered with $362k and they say they want to stay at $345. The issue is that the offer is contingent on them selling their house (the realtor called it a "hubbard clause" and the offer paperwork he sent me calls it "sale of buyer's property contingency".

As I understand the legal mumbo-jumbo, he has until Sept 17 to have a signed contract on his house for selling it and if he doesn't, we will cancel his offer. I also understand that we can continue to keep our house listed on the market and if we get a better offer, he has 2 days to prove to us he can buy our house or we cancel his offer and take the other offer. Am I understanding this all correctly?

I'm not entirely comfortable asking my realtor since he's representing both of us (and the sale of the buyer's other house).

I am inclined to accept the offer since it's been on the market for 4 months, and the market is tanking and that it's the end of the summer and things are about the slow way down anyway. I just want to make sure I'm understanding the contingency correctly. I don't know any realtors, so I turn to the brilliant hive mind.

I am totally green about all this and I'm really nervous. In fact, I've decided I'm never buying or selling real estate again!!! Ugh!!

Thanks everyone!

posted by SheIsMighty to home & garden (22 comments total)

I'm astonished to hear that the realtor is representing the other party to your transaction, and both sides of his transaction. I would be very uncomfortable with that.
posted by Nelson at 3:02 PM on August 27, 2006

I would pay the money to have an attorney look at the offer--but on its face it looks good since you can continue to list it and accept offers with a two day turn around. Would seem to be a safety valve for you so you are not helplessly sitting by while (s)he tries to sell their house. I don't think we can expect the market to improve in the near future--Best Wishes fca IANAL
posted by rmhsinc at 3:30 PM on August 27, 2006

IAAL. Get one in your area to look at the contract.
posted by Ironmouth at 3:57 PM on August 27, 2006

Making a buyer's acceptance contingent on the sale of the buyer's home isn't that unusual, but it'll be hard for anyone here to say whether you are understanding it correctly based on what you've reported . . . . I would imagine the terms of those clauses can vary a lot. For example, I'd guess that not all have the two-day provision you report, which is kind of a nice feature (though I'm not sure how the buyers can prove capacity to buy at the new price without having already sold their home, and hope that would be spelled out).

As to the realtor representing both sides, I too was shocked by that when we first bought a home, but it isn't unusual -- just something to bear in mind, as you evidently are. If I understand your situation, and the realtor's incentives, I wouldn't be so worried that the terms would allow the buyer to wriggle off the hook too easily -- the realtor has a big incentive to make this deal happen. I would be more worried that he or she got the best deal for you on price, though there too the buyers should be more worried, since the realtor will be paid a percentage of the deal in most cases (making for an incentive to go high rather than low). It is possible that the realtor may be slighly less open than would be ideal to the possibility of a completely different deal from another buyer -- though, on the one hand, the realtor should like anything that bumps up the price, it is possible that the substitute buyer who comes in while the original buyer is trying to sell might have his or her own buyer's agent, which could result in the original realtor having to split fees.
posted by Clyde Mnestra at 4:01 PM on August 27, 2006

see a lawyer ... make sure it's one that doesn't have a business relationship with your realtor

if there's no hangups in the paperwork, i'd be inclined to take the deal
posted by pyramid termite at 4:01 PM on August 27, 2006

Maybe a little off topic, but something to think about with respect to the offer: is the realtor taking a full 5% of the transaction? Typically, the realtor splits a 5% commission with the buyer's agent, but here there is no buyer's agent. This guy could be getting too much of the transaction, if you asked me.
posted by Mid at 4:10 PM on August 27, 2006

Make sure that if you get a better bonafide offer he has "right of refusal" at the price of the new offer, not at the $345k amount.

Oh, and get a real estate lawyer. Especially since your agent is working on both sides of the transaction. Your agent has a great interest (probably around $20k) in seeing both of the houses sell. A lawyer will make sure that the contract (which you didn't draft) protects you as much as possible.

Finally, (it bears repeating) get a lawyer to look over the contract before you sign.
posted by MCTDavid at 4:10 PM on August 27, 2006

Get yourself an agent or lawyer to represent your interests in this deal.
Your situation isn't unusual. It's rather tough to time sales when both parties have something to sell.
However--why would you want to hire someone to represent you who is also representing the other party?
(Also--not trying to be snarky here, but if you already had a competent agent, do you think your property would still be on the market after four months?)
posted by FergieBelle at 4:34 PM on August 27, 2006

I agree with Clyde Mnestra and MCTDavid. Since the realtor is also representing the buyer, he has an incentive to complete the deal with the the buyer and to discourage a possibly better deal from another buyer's realtor in order to prevent splitting the commission. You need someone on your side to give you an opinion on this contract. Get yourself a lawyer.
posted by JackFlash at 4:35 PM on August 27, 2006

Have your newly found lawyer _make sure_ that you aren't locked into this offer - it should have a "bump clause". A "bump clause" states that someone has an offer on your house, but if someone comes in with a better offer you can "bump" the crappy offer that has contingencies. This sounds like what you described from the contract, but you need a pro to look at this.

Also, re: the market - I see you are out on the east coast. From what I've read and seen, the housing market is only going to get worse over the next 6 - 12 months, especially on the coasts as they were so overheated to begin with. I'm seeing houses sit for six months to a year where I live, and I'm in the middle of the country in a very popular city! So four months might be considered very good at this point. If the offer checks out and you can afford it, I'd say go for it. (I'd also recommend downsizing to a cheaper house rather then going for the 500k McMansion, but hey...)
posted by rsanheim at 4:49 PM on August 27, 2006

SInce the agent is repping both sides of your sale as well as the sale of the buyer, (s)he has no incentive to bring in another buyer during the contingency period. I would talk to the manager of the agency about getting someone else to rep your house during the contingency period.
posted by JohnnyGunn at 5:03 PM on August 27, 2006

Let me address a few of your concerns, although be aware that real estate laws vary from state to state. These are generalizations from Missouri - I am a Realtor, but not your Realtor.

Sale of a home as a contingency is not unusual, but it can be a sticking point. You should absolutely keep your home on the market during this time, and make sure your Realtor is actively showing the home to interested parties. As stated by Mid, the Realtor could be getting the full commission instead of half (if another Realtor brought the buyer to the table). In this scenario, his actions could potentially keep other legitimate buyers and offers from fully developing. If he is the Realtor listing your home, however, the contract you signed with him makes him legally bound to represent your best interests. If he has an agreement signed with the buyers as well, he is also bound to represent their best interests. This is called dual agency, and means he must represent each side without harming the other. Example: If he knew you would accept $360 for your home instead of the listed price, he could not legally tell the buyers that "I think they'll take $360."

This also applies to your current situation. The Realtor must continue to represent your best interests in this situation, which means showing the home and taking offers. In reality, this is most likely what will continue to happen. If the Realtor can show the home to others, and get the price above the current offer, he will be serving your best interest (and his own bottom line, as well). Not to mention the fact that the contingency on the sale of the buyer's home makes the current offer not ideal - not a bad offer in any way, but just a way that it could not go through.

As for taking another offer, that is how it should work. Be aware that most offers have an expiration period of 48-72 hours, so things will move quickly if the buyer has to remove the contingency clause.

One more thing, ask your Realtor what happens if the buyer does have a signed contract on their current home by September 17, but that offer falls through. The buyer is unable or unwilling to purchase the new home without money from the old home (or at least payment of the old home's mortgage). If the contract on their home falls through, they will most likely be legally obligated to the contract with you, but that doesn't mean they can get the money. Then you're stuck with the house not sold, and the only money you can get for your inconvenience is possibly some of the earnest money, and/or suing for damages. Not fun or profitable in any way.

If you have any questions at all, email is in my profile.
posted by shinynewnick at 5:04 PM on August 27, 2006

It sounds like in the worst case, you are being asked to give first right of refusal to these people. That should have some value..

What about asking them to pay a $5,000 penalty if they cancel, or something?
posted by Chuckles at 5:06 PM on August 27, 2006

since the realtor will be paid a percentage of the deal in most cases (making for an incentive to go high rather than low)

In Freakonomics the authors argue to the contrary. Essentially, after taking into account the commission they give to the agency etc. (the drop of 40k is just 10% of their commission) they'd rather get the commission now than devote far more time to maybe realising another 5% in price for you. They cite statistics that realtors (on average) keep their houses on the market for 10 days longer and sell them for 3% more than they advise their clients.

(We're selling our house v soon and I too am terrified.)
posted by NailsTheCat at 5:24 PM on August 27, 2006

My commiserations, I sold a house for the first time last year and its truly a nerve-wracking experience. Going purely from the information you have provided us here, I would accept the offer (if it was me). It seems you have nothing to lose, because if another, better offer comes along before Sept 17th, you can play the two buyers off against each other.

Ask your agent about the areas you are unclear on, its his job to explain these things. I understand your discomfort when he represents both sides, but if he is a good realtor, you should have nothing to worry about. If the market is heading downwards its going to be in his interests to get the house sold sooner rather than later, since its likely the price (and his %) will go down if things go on for too long.
posted by Joh at 5:36 PM on August 27, 2006

Doesn't it seem like dual agency should die now that their are true buyer's agents available? Why even present the ethical tempation?

I agree with these guys: No Dual Agency
posted by rsanheim at 6:33 PM on August 27, 2006

This looks fine to me, but check with your lawyer. You weren't going to try selling without one were you? That would be bad.
posted by caddis at 7:32 PM on August 27, 2006

Thanks for all of your advice, everyone. I will be contacting my lawyer tomorrow and make sure it checks out.

The other interesting thing is that the contract I have with this particular realtor ends at midnight tonight and I start with a new realtor tomorrow. Wouldn't you think the current realtor would be pushing for the buyers to make a really attractive offer to me since this is literally his last shot at making any money from me? He wants me to sign something stating that even if I am with a new realtor, he'll still do the transaction for this buyer since he started the transaction. That seems fair to me. Is it?
posted by SheIsMighty at 8:08 PM on August 27, 2006

MCTDavid wrote: Make sure that if you get a better bonafide offer he has "right of refusal" at the price of the new offer, not at the $345k amount.

A question to the realtors out there: Is this ever done? Anything can be written into a contract, but what MCTDavid suggested strikes me as very unconventional.
posted by malp at 8:08 PM on August 27, 2006

I am inclined to accept the offer since it's been on the market for 4 months, and the market is tanking and that it's the end of the summer and things are about the slow way down anyway.

If I were trying to sell a house at the moment, I'd take any offer that was reasonable, for this very reason. The next few years are going to be very unpleasant indeed for sellers and their agents.
posted by stavrosthewonderchicken at 11:11 PM on August 27, 2006

the realtor will be paid a percentage of the deal in most cases (making for an incentive to go high rather than low)

What NailsTheCat said. I used to assume this too, but it's not true: they want to move it ASAP and not waste too much effort on it (unless of course it's their house). I'm in the same situation—I recently discovered our agent is representing the buyer as well, and wasn't thrilled about it—but since we're getting a decent price and the market is tanking, we're going to take the money and run.
posted by languagehat at 6:19 AM on August 28, 2006

malp: It is generally accepted (although a lawyer will explain fully) that the buyer must remove the sale of his home as a contingency to complete the sale at the agreed upon price. The new offer could be for any amount of money, even less with no contingencies, and thus be considered a "better" deal to the seller. His only "right of refusal" is to remove the contingency; if he does this, you are bound to maintain that original contract.

SheIsMighty: Because your original Realtor is considered the "procuring cause", they are due the commission agreed upon in your listing contract. They are the "reason" more or less that these people are buying your home. Your new Realtor should understand this, but make sure you get this in writing. You do not want to owe the old Realtor %6 and the new Realtor an additional 3%. Get this in writing! Your new Realtor must understand that if this deal goes through, they will not receive a commission. If you want to work out a payment for your Realtor assisting you in closing this deal, that's fine, but it needs to be separate from the commission agreement.
posted by shinynewnick at 6:30 AM on August 28, 2006